Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 814-00733

 

 

Triangle Capital Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Maryland    06-1798488

(State or other jurisdiction of

incorporation or organization)

  

(I.R.S. Employer

Identification No.)

3700 Glenwood Avenue, Suite 530

Raleigh, North Carolina

   27612
(Address of principal executive offices)    (Zip Code)

Registrant’s telephone number, including area code: (919) 719-4770

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: N/A

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s Common Stock on May 2, 2012 was 27,263,151.

 

 

 


Table of Contents

TRIANGLE CAPITAL CORPORATION

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

 

     Page  
PART I – FINANCIAL INFORMATION   
Item 1.   

Financial Statements

  
  

Unaudited Consolidated Balance Sheet as of March 31, 2012 and Consolidated Balance Sheet as of December 31, 2011

     3   
  

Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011

     4   
  

Unaudited Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2012 and 2011

     5   
  

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

     6   
  

Unaudited Consolidated Schedule of Investments as of March 31, 2012

     7   
  

Consolidated Schedule of Investments as of December 31, 2011

     12   
  

Notes to Unaudited Consolidated Financial Statements

     17   
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     28   
Item 3.   

Quantitative and Qualitative Disclosures about Market Risk

     38   
Item 4.   

Controls and Procedures

     39   
PART II – OTHER INFORMATION   
Item 1.   

Legal Proceedings

     39   
Item 1A.   

Risk Factors

     39   
Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     39   
Item 3.   

Defaults Upon Senior Securities

     40   
Item 4.   

Mine Safety Disclosures

     40   
Item 5.   

Other Information

     40   
Item 6.   

Exhibits

     40   
Signatures      42   
Exhibits   

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

TRIANGLE CAPITAL CORPORATION

Consolidated Balance Sheets

 

     March 31,      December 31,  
     2012      2011  
     (Unaudited)         

Assets

     

Investments at fair value:

     

Non–Control / Non–Affiliate investments (cost of $424,962,392 and $389,312,451 at March 31, 2012 and December 31, 2011, respectively)

   $ 436,419,052       $ 396,502,490   

Affiliate investments (cost of $98,502,634 and $97,751,264 at March 31, 2012 and December 31, 2011, respectively)

     101,197,149         103,266,298   

Control investments (cost of $11,464,968 and $11,278,339 at March 31, 2012 and December 31, 2011, respectively)

     6,818,996         7,309,787   
  

 

 

    

 

 

 

Total investments at fair value

     544,435,197         507,078,575   

Cash and cash equivalents

     142,514,158         66,868,340   

Interest and fees receivable

     2,745,074         1,883,395   

Prepaid expenses and other current assets

     470,126         623,318   

Deferred financing fees

     8,485,166         6,682,889   

Property and equipment, net

     60,611         58,304   
  

 

 

    

 

 

 

Total assets

   $ 698,710,332       $ 583,194,821   
  

 

 

    

 

 

 

Liabilities

     

Accounts payable and accrued liabilities

   $ 1,510,224       $ 4,116,822   

Interest payable

     1,205,864         3,521,932   

Taxes payable

     203,893         1,402,866   

Deferred income taxes

     775,953         628,742   

Borrowings under credit facility

     —           15,000,000   

Senior notes

     69,000,000         —     

SBA-guaranteed debentures payable

     213,871,133         224,237,504   
  

 

 

    

 

 

 

Total liabilities

     286,567,067         248,907,866   

Net Assets

     

Common stock, $0.001 par value per share (150,000,000 shares authorized, 27,263,151 and 22,774,726 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively)

     27,263         22,775   

Additional paid-in-capital

     396,320,487         318,297,269   

Investment income in excess of distributions

     6,054,619         6,847,486   

Accumulated realized gains on investments

     1,011,649         1,011,649   

Net unrealized appreciation of investments

     8,729,247         8,107,776   
  

 

 

    

 

 

 

Total net assets

     412,143,265         334,286,955   
  

 

 

    

 

 

 

Total liabilities and net assets

   $ 698,710,332       $ 583,194,821   
  

 

 

    

 

 

 

Net asset value per share

   $ 15.12       $ 14.68   
  

 

 

    

 

 

 

See accompanying notes.

 

3


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Statements of Operations

 

     Three Months
Ended
    Three Months
Ended
 
     March 31,
2012
    March 31,
2011
 

Investment income:

    

Loan interest, fee and dividend income:

    

Non–Control / Non–Affiliate investments

   $ 12,963,602      $ 8,749,449   

Affiliate investments

     2,717,149        1,374,243   

Control investments

     59,773        258,268   
  

 

 

   

 

 

 

Total loan interest, fee and dividend income

     15,740,524        10,381,960   

Paid–in–kind interest income:

    

Non–Control / Non–Affiliate investments

     2,587,267        1,481,820   

Affiliate investments

     654,233        395,171   

Control investments

     19,971        65,297   
  

 

 

   

 

 

 

Total paid–in–kind interest income

     3,261,471        1,942,288   

Interest income from cash and cash equivalent investments

     109,858        101,149   
  

 

 

   

 

 

 

Total investment income

     19,111,853        12,425,397   
  

 

 

   

 

 

 

Expenses:

    

Interest and credit facility fees

     3,087,820        1,989,984   

Amortization of deferred financing fees

     222,917        152,173   

General and administrative expenses

     3,607,267        2,397,523   
  

 

 

   

 

 

 

Total expenses

     6,918,004        4,539,680   
  

 

 

   

 

 

 

Net investment income

     12,193,849        7,885,717   

Net unrealized appreciation of investments

     621,471        4,595,755   
  

 

 

   

 

 

 

Total net gain on investments before income taxes

     621,471        4,595,755   

Loss on extinguishment of debt

     (205,043     (157,590

Income tax benefit

     7,231        27,359   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 12,617,508      $ 12,351,241   
  

 

 

   

 

 

 

Net investment income per share—basic and diluted

   $ 0.49      $ 0.47   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations per share—basic and diluted

   $ 0.50      $ 0.73   
  

 

 

   

 

 

 

Dividends declared per common share

   $ 0.47      $ 0.42   
  

 

 

   

 

 

 

Weighted average number of shares outstanding—basic and diluted

     25,075,300        16,848,570   
  

 

 

   

 

 

 

See accompanying notes.

 

4


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Statements of Changes in Net Assets

 

                       Investment     Accumulated     Net         
                 Income     Realized     Unrealized         
     Common Stock     Additional     in Excess of     Gains     Appreciation      Total  
     Number     Par     Paid In     (Less Than)     (Losses) on     (Depreciation)      Net  
     of Shares     Value     Capital     Distributions     Investments     of Investments      Assets  

Balance, January 1, 2011

     14,928,987      $ 14,929      $ 183,602,755      $ 3,365,548      $ (8,244,376   $ 1,740,303       $ 180,479,159   

Net investment income

     —          —          —          7,885,717        —          —           7,885,717   

Stock-based compensation

     —          —          414,329        —          —          —           414,329   

Net unrealized gains on investments

     —          —          —          —          —          4,595,755         4,595,755   

Loss on extinguishment of debt

     —          —          —          (157,590     —          —           (157,590

Income tax benefit

     —          —          —          27,359        —          —           27,359   

Dividends/distributions declared

     61,766        62        1,094,444        (7,773,397     —          —           (6,678,891

Public offering of common stock

     3,450,000        3,450        63,134,805        —          —          —           63,138,255   

Issuance of restricted stock

     152,779        153        (153     —          —          —           —     

Common stock withheld for payroll taxes upon vesting of restricted stock

     (23,676     (24     (485,571     —          —          —           (485,595
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31, 2011

     18,569,856      $ 18,570      $ 247,760,609      $ 3,347,637      $ (8,244,376   $ 6,336,058       $ 249,218,498   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

                       Investment     Accumulated      Net         
                 Income     Realized      Unrealized         
     Common Stock     Additional     in Excess of     Gains      Appreciation      Total  
     Number     Par     Paid In     (Less Than)     (Losses) on      (Depreciation)      Net  
     of Shares     Value     Capital     Distributions     Investments      of Investments      Assets  

Balance, January 1, 2012

     22,774,726      $ 22,775      $ 318,297,269      $ 6,847,486      $ 1,011,649       $ 8,107,776       $ 334,286,955   

Net investment income

     —          —          —          12,193,849        —           —           12,193,849   

Stock-based compensation

     —          —          648,750        —          —           —           648,750   

Net unrealized gains on investments

     —          —          —          —          —           621,471         621,471   

Loss on extinguishment of debt

     —          —          —          (205,043     —           —           (205,043

Income tax benefit

     —          —          —          7,231        —           —           7,231   

Dividends/distributions declared

     52,717        52        1,028,467        (12,788,904     —           —           (11,760,385

Public offering of common stock

     4,255,000        4,255        77,243,819        —          —           —           77,248,074   

Issuance of restricted stock

     227,631        228        (228     —          —           —           —     

Common stock withheld for payroll taxes upon vesting of restricted stock

     (46,923     (47     (897,590     —          —           —           (897,637
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance, March 31, 2012

     27,263,151      $ 27,263      $ 396,320,487      $ 6,054,619      $ 1,011,649       $ 8,729,247       $ 412,143,265   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

See accompanying notes.

 

5


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Statements of Cash Flows

 

     Three Months
Ended

March 31,
2012
    Three Months
Ended

March 31,
2011
 

Cash flows from operating activities:

    

Net increase in net assets resulting from operations

   $ 12,617,508      $ 12,351,241   

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:

    

Purchases of portfolio investments

     (41,952,989     (68,275,512

Repayments received/sales of portfolio investments

     8,253,844        14,936,864   

Loan origination and other fees received

     666,420        1,466,292   

Net unrealized appreciation of investments

     (768,682     (4,789,955

Deferred income taxes

     147,211        194,200   

Payment–in–kind interest accrued, net of payments received

     (2,704,362     (857,493

Amortization of deferred financing fees

     222,917        152,173   

Loss on extinguishment of debt

     205,043        157,590   

Accretion of loan origination and other fees

     (476,512     (415,247

Accretion of loan discounts

     (374,341     (260,986

Accretion of discount on SBA-guaranteed debentures payable

     43,629        42,378   

Depreciation expense

     7,349        7,064   

Stock-based compensation

     648,750        414,329   

Changes in operating assets and liabilities:

    

Interest and fees receivable

     (861,679     (532,986

Prepaid expenses

     153,192        (218,943

Accounts payable and accrued liabilities

     (2,606,598     (1,341,160

Interest payable

     (2,316,068     (1,774,828

Deferred revenue

     —          5,287   

Taxes payable

     (1,198,973     (191,672
  

 

 

   

 

 

 

Net cash used in operating activities

     (30,294,341     (48,931,364
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (9,656     (18,115
  

 

 

   

 

 

 

Net cash used in investing activities

     (9,656     (18,115
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings under SBA-guaranteed debentures payable

     —          21,600,000   

Repayments of SBA-guaranteed debentures payable

     (10,410,000     (9,500,000

Repayments of credit facility

     (15,000,000     —     

Proceeds from senior notes

     69,000,000        —     

Financing fees paid

     (2,230,237     (523,801

Proceeds from public stock offerings, net of expenses

     77,248,074        63,138,255   

Common stock withheld for payroll taxes upon vesting of restricted stock

     (897,637     (485,595

Cash dividends paid

     (11,760,385     (6,678,891
  

 

 

   

 

 

 

Net cash provided by financing activities

     105,949,815        67,549,968   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     75,645,818        18,600,489   

Cash and cash equivalents, beginning of period

     66,868,340        54,820,222   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 142,514,158      $ 73,420,711   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 5,289,789      $ 3,722,434   
  

 

 

   

 

 

 

See accompanying notes.

 

6


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Schedule of Investments

March 31, 2012

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Non–Control / Non–Affiliate Investments:

  

Ambient Air Corporation (“AA”) and Peaden-Hobbs Mechanical, LLC (“PHM”) (1%)*

   Specialty Trade Contractors    Subordinated Note-AA (15% Cash, 3% PIK, Due 06/13)    $ 4,159,154       $ 4,138,386       $ 4,138,386   
      Subordinated Note-PHM (12% Cash, Due 09/12)      12,857         12,857         12,857   
      Common Stock-PHM (128,571 shares)         128,571         128,571   
      Common Stock Warrants-AA (455 shares)         142,361         841,000   
        

 

 

    

 

 

    

 

 

 
           4,172,011         4,422,175         5,120,814   

Ann’s House of Nuts, Inc. (3%)*

   Trail Mixes and Nut Producers    Subordinated Note (12% Cash, 1% PIK, Due 11/17)      7,098,742         6,745,782         6,745,782   
      Preferred A Units (22,368 units)         2,124,957         2,400,000   
      Preferred B Units (10,380 units)         986,059         1,244,000   
      Common Units (190,935 units)         150,000         —     
      Common Stock Warrants (14,558 shares)         14,558         —     
        

 

 

    

 

 

    

 

 

 
           7,098,842         10,021,356         10,389,782   

Aramsco, Inc. (0%)

   Environmental Emergency Preparedness Products Distributor    Subordinated Note (12% Cash, 2% PIK, Due 03/14)     
 
    
1,747,290
 
  
    
 
    
1,632,143
 
  
    
 
    
1,632,143
 
  
        

 

 

    

 

 

    

 

 

 
           1,747,290         1,632,143         1,632,143   

Assurance Operations Corporation (0%)*

   Metal Fabrication    Common Stock (517 Shares)         516,867         798,000   
           

 

 

    

 

 

 
              516,867         798,000   

BioSan Laboratories, Inc. (1%)*

   Nutritional Supplement Manufacturing and Distribution    Subordinated Note (12% Cash, 3.8% PIK, Due 10/16)     
 
    
5,326,311
 
  
    
 
    
5,233,287
 
  
    
 
    
5,233,287
 
  
        

 

 

    

 

 

    

 

 

 
           5,326,311         5,233,287         5,233,287   

Botanical Laboratories, Inc. (2%)*

   Nutritional Supplement Manufacturing and Distribution    Senior Notes (14% Cash, 1% PIK, Due 02/15)      9,887,499         9,386,329         9,386,329   
      Common Unit Warrants (998,680 Units)         474,600         —     
        

 

 

    

 

 

    

 

 

 
           9,887,499         9,860,929         9,386,329   

Capital Contractors, Inc. (2%)*

   Janitorial and Facilities Maintenance Services    Subordinated Notes (12% Cash, 2% PIK, Due 12/15)     
 
    
9,231,740
 
  
    
 
    
8,692,515
 
  
    
 
    
8,692,515
 
  
      Common Stock Warrants (20 shares)         492,000         406,000   
        

 

 

    

 

 

    

 

 

 
           9,231,740         9,184,515         9,098,515   

Carolina Beverage Group, LLC (3%)*

   Beverage    Subordinated Note (12% Cash, 4% PIK, Due         
   Manufacturing and Packaging    02/16)      13,394,977         13,200,222         13,200,222   
      Class A Units (11,974 Units)         1,077,615         1,193,000   
      Class B Units (11,974 Units)         119,735         —     
        

 

 

    

 

 

    

 

 

 
           13,394,977         14,397,572         14,393,222   

Continental Anesthesia Management, LLC (2%)*

   Physicians    Senior Note (13.5% Cash, Due 11/14)      10,200,000         9,917,463         9,917,463   
   Management            
   Services    Warrant (263 shares)         276,100         115,000   
        

 

 

    

 

 

    

 

 

 
           10,200,000         10,193,563         10,032,463   

CRS Reprocessing, LLC (6%)*

   Fluid Reprocessing Services    Subordinated Note (12% Cash, 2% PIK, Due 11/15)     
 
    
11,414,774
 
  
    
 
    
11,103,141
 
  
    
 
    
11,103,141
 
  
      Subordinated Note (12% Cash, 2% PIK, Due 11/15)     
 
    
11,072,372
 
  
    
 
    
10,126,929
 
  
    
 
    
10,126,929
 
  
      Series C Preferred Units (26 Units)         288,342         463,000   
      Common Unit Warrant (550 Units)         1,253,556         4,065,000   
        

 

 

    

 

 

    

 

 

 
           22,487,146         22,771,968         25,758,070   

CV Holdings, LLC (4%)*

   Specialty    Subordinated Note (12% Cash, 4% PIK, Due         
   Healthcare    09/13)      9,373,192         8,996,545         8,996,545   
   Products    Subordinated Note (12% Cash, Due 09/13)      6,000,000         5,923,793         5,923,793   
   Manufacturer    Royalty rights         874,400         832,000   
        

 

 

    

 

 

    

 

 

 
           15,373,192         15,794,738         15,752,338   

DLR Restaurants, LLC (3%)*

   Restaurant    Subordinated Note (12% Cash, 3% PIK, Due 03/16)     
 
    
10,741,488
 
  
    
 
    
10,538,856
 
  
    
 
    
10,538,856
 
  
      Subordinated Note (12% Cash, 4% PIK, Due 03/16)     
 
    
759,713
 
  
    
 
    
759,713
 
  
    
 
    
759,713
 
  
      Royalty rights         —           —     
        

 

 

    

 

 

    

 

 

 
           11,501,201         11,298,569         11,298,569   

Electronic Systems Protection, Inc. (1%)*

   Power Protection Systems Manufacturing    Subordinated Note (12% Cash, 2% PIK, Due 12/15)     
 
    
4,183,612
 
  
    
 
    
4,150,879
 
  
    
 
    
4,150,879
 
  
      Common Stock (570 shares)         285,000         369,000   
        

 

 

    

 

 

    

 

 

 
           4,183,612         4,435,879         4,519,879   

Frozen Specialties, Inc. (2%)*

   Frozen Foods Manufacturer    Subordinated Note (13% Cash, 5% PIK, Due 07/14)      8,586,345         8,506,946         8,506,946   
        

 

 

    

 

 

    

 

 

 
           8,586,345         8,506,946         8,506,946   

 

7


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Schedule of Investments

March 31, 2012

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Garden Fresh Restaurant Corp. (0%)*

   Restaurant   

Membership Units (5,000 units)

      $ 500,000       $ 740,000   
           

 

 

    

 

 

 
              500,000         740,000   

Grindmaster-Cecilware Corp. (1%)*

   Food Services Equipment Manufacturer    Subordinated Note (12% Cash, 6% PIK, Due 04/16)      6,369,993         6,298,897         5,529,000   
        

 

 

    

 

 

    

 

 

 
           6,369,993         6,298,897         5,529,000   

Hatch Chile Co., LLC (1%)*

   Food Products Distributor    Senior Note (19% Cash, Due 07/15)      4,500,000         4,415,726         4,415,726   
      Subordinated Note (14% Cash, Due 07/15)      1,000,000         873,286         873,286   
      Unit Purchase Warrant (5,265 Units)         149,800         267,000   
        

 

 

    

 

 

    

 

 

 
           5,500,000         5,438,812         5,556,012   

Home Physicians, LLC (“HP”) and Home Physicians Holdings, LP (“HPH”) (2%)*

   In-home primary care physician services    Subordinated Note—HP (12% Cash, 5% PIK, Due 03/16)      10,789,319         10,599,352         9,300,000   
      Subordinated Note—HPH (4% Cash, 6% PIK, Due 03/16)      1,303,361         1,303,361         —     
      Subordinated Note—HP (14% Cash, 2% PIK, Due 3/16)      602,970         591,498         591,498   
      Royalty rights         —           —     
        

 

 

    

 

 

    

 

 

 
           12,695,650         12,494,211         9,891,498   

Infrastructure Corporation of America, Inc. (3%)*

   Roadway Maintenance, Repair and Engineering Services    Subordinated Note (12% Cash, 1% PIK, Due 10/15)      10,906,338         9,958,194         9,958,194   
      Common Stock Purchase Warrant (199,526 shares)         980,000         1,255,000   
        

 

 

    

 

 

    

 

 

 
           10,906,338         10,938,194         11,213,194   

Inland Pipe Rehabilitation Holding Company LLC
(5%)*

   Cleaning and Repair Services    Subordinated Note (13% Cash, 2.5% PIK, Due 12/16)      20,405,615         20,135,203         20,135,203   
      Membership Interest Purchase Warrant (3.0%)         853,500         2,198,000   
        

 

 

    

 

 

    

 

 

 
           20,405,615         20,988,703         22,333,203   

Library Systems & Services, LLC (1%)*

   Municipal Business Services    Subordinated Note (12.5% Cash, 4.5% PIK, Due 06/15)      5,309,720         5,196,733         5,196,733   
      Common Stock Warrants (112 shares)         58,995         771,000   
        

 

 

    

 

 

    

 

 

 
           5,309,720         5,255,728         5,967,733   

Magpul Industries Corp. (4%)

   Firearm Accessories Manufacturer and Distributor    Subordinated Note (12% Cash, 3% PIK, Due 03/17)      13,300,000         13,051,683         13,051,683   
      Preferred Units (1,470 Units)         1,470,000         1,583,000   
      Common Units (30,000 Units)         30,000         1,050,000   
        

 

 

    

 

 

    

 

 

 
           13,300,000         14,551,683         15,684,683   

Media Storm, LLC (2%)*

   Marketing Services    Subordinated Note (12% Cash, 2% PIK, Due 10/17)      8,574,772         8,494,784         8,494,784   
      Membership Units (1,216,204 Units)         1,216,204         1,216,204   
        

 

 

    

 

 

    

 

 

 
           8,574,772         9,710,988         9,710,988   

Media Temple, Inc. (4%)*

   Web Hosting Services    Subordinated Note (12% Cash, 5.5% PIK, Due 04/15)      8,800,000         8,667,526         8,667,526   
      Convertible Note (8% Cash, 6% PIK, Due 04/15)      3,200,000         2,806,774         5,099,000   
      Common Stock Purchase Warrant (28,000 Shares)         536,000         2,231,000   
        

 

 

    

 

 

    

 

 

 
           12,000,000         12,010,300         15,997,526   

Minco Technology Labs, LLC (1%)*

   Semiconductor Distribution    Subordinated Note (13% Cash, 3.25% PIK, Due 05/16)      5,315,744         5,217,911         5,217,911   
      Class A Units (5,000 Units)         500,000         83,000   
        

 

 

    

 

 

    

 

 

 
           5,315,744         5,717,911         5,300,911   

National Investment Managers Inc. (3%)*

   Retirement Plan Administrator    Subordinated Note (11% Cash, 5% PIK, Due 09/16)      11,850,947         11,609,186         11,609,186   
      Preferred A Units (90,000 Units)         900,000         479,000   
      Common Units (10,000 Units)         100,000         —     
        

 

 

    

 

 

    

 

 

 
           11,850,947         12,609,186         12,088,186   

Novolyte Technologies, Inc. (3%)*

   Specialty Manufacturing    Subordinated Note (12% Cash, 4% PIK, Due 07/16)      7,337,631         7,221,971         7,221,971   
      Subordinated Note (12% Cash, 4% PIK, Due 07/16)      2,358,525         2,321,349         2,321,349   
      Preferred Units (641 units)         661,227         874,000   
      Common Units (24,522 units)         165,306         2,198,000   
        

 

 

    

 

 

    

 

 

 
           9,696,156         10,369,853         12,615,320   

Pomeroy IT Solutions (2%)*

   Information Technology Outsourcing Services    Subordinated Notes (13% Cash, 2% PIK, Due 02/16)     
 
    
10,232,670
 
  
    
 
    
10,017,621
 
  
    
 
    
10,017,621
 
  
        

 

 

    

 

 

    

 

 

 
           10,232,670         10,017,621         10,017,621   

PowerDirect Marketing, LLC (2%)*

   Marketing Services    Subordinated Note (12% Cash, 2% PIK, Due 05/16)      8,142,017         7,643,193         7,643,193   
      Common Unit Purchase Warrants         402,000         736,000   
        

 

 

    

 

 

    

 

 

 
           8,142,017         8,045,193         8,379,193   

 

8


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Schedule of Investments

March 31, 2012

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Renew Life Formulas, Inc. (3%)*

   Nutritional Supplement Manufacturing and Distribution    Subordinated Notes (12% Cash, 2% PIK, Due 03/15)        
$
 
13,283,019
 
  
       
$
 
13,052,984
 
  
       
$
 
13,052,984
 
  
        

 

 

    

 

 

    

 

 

 
           13,283,019         13,052,984         13,052,984   

ROM Acquisition Corporation (2%)*

   Military and Industrial Vehicles Equipment Manufacturing    Subordinated Note (12% Cash, 3% PIK, Due 3/17)     
 
    
8,500,000
 
  
    
 
    
8,415,000
 
  
    
 
    
8,415,000
 
  
        

 

 

    

 

 

    

 

 

 
           8,500,000         8,415,000         8,415,000   

Sheplers, Inc. (3%)*

   Western Apparel Retailer    Subordinated Note (13.15% Cash, Due 12/16)      8,750,000         8,539,166         8,539,166   
      Subordinated Note (10% Cash, 7% PIK, Due 12/17)      3,823,585         3,751,521         3,751,521   
        

 

 

    

 

 

    

 

 

 
           12,573,585         12,290,687         12,290,687   

SRC, Inc. (2%)*

   Specialty Chemical Manufacturer    Subordinated Notes (12% Cash, 2% PIK, Due 09/14)      8,924,137         8,701,808         8,701,808   
      Common Stock Purchase Warrants         123,800         —     
        

 

 

    

 

 

    

 

 

 
           8,924,137         8,825,608         8,701,808   

Stella Environmental Services, LLC (1%)*

   Waste Transfer Stations    Subordinated Notes (12% Cash, 3.5% PIK, Due 2/17)      6,277,344         6,132,344         6,132,344   
      Common Stock Purchase Warrants         20,000         20,000   
        

 

 

    

 

 

    

 

 

 
           6,277,344         6,152,344         6,152,344   

Syrgis Holdings, Inc. (1%)*

   Specialty Chemical Manufacturer    Senior Notes (7.75%-10.75% Cash, Due 08/12-02/14)      2,063,764         2,059,161         2,059,161   
      Class C Units (2,114 units)         1,000,000         1,625,000   
        

 

 

    

 

 

    

 

 

 
           2,063,764         3,059,161         3,684,161   

The Krystal Company (3%)*

   Quick Serve Restaurants    Subordinated Note (12% Cash, 3% PIK, Due 6/17)      12,232,203         11,987,783         11,987,783   
      Class A Units of Limited Partnership         2,000,000         2,000,000   
        

 

 

    

 

 

    

 

 

 
           12,232,203         13,987,783         13,987,783   

TMR Automotive Service Supply, LLC (1%)

   Automotive Supplies    Subordinated Note (12% Cash, 1% PIK, Due 03/16)      4,750,000         4,500,930         4,500,930   
      Unit Purchase Warrant (329,518 units)         195,000         322,000   
        

 

 

    

 

 

    

 

 

 
           4,750,000         4,695,930         4,822,930   

Top Knobs USA, Inc. (3%)

   Hardware Designer and Distributor    Subordinated Note (12% Cash, 4.5% PIK, Due 05/17)      10,486,949         10,338,011         10,338,011   
      Common Stock (26,593 shares)         750,000         763,000   
        

 

 

    

 

 

    

 

 

 
           10,486,949         11,088,011         11,101,011   

Trinity Consultants Holdings, Inc. (2%)*

   Air Quality Consulting Services    Subordinated Note (12% Cash, 2.5% PIK, Due 11/17)      7,262,200         7,122,383         7,122,383   
      Series A Preferred Stock (10,000 units)         950,000         950,000   
      Common Stock (55,556 units)         50,000         50,000   
        

 

 

    

 

 

    

 

 

 
           7,262,200         8,122,383         8,122,383   

TrustHouse Services Group, Inc. (3%)*

   Food Management Services    Subordinated Note (12% Cash, 2% PIK, Due 07/18)      13,429,668         13,208,258         13,208,258   
      Class A Units (1,557 units)         512,124         872,000   
      Class B Units (82 units)         26,954         31,000   
        

 

 

    

 

 

    

 

 

 
           13,429,668         13,747,336         14,111,258   

Tulsa Inspection Resources, Inc. (2%)*

   Pipeline Inspection Services    Subordinated Note (14%-17.5% Cash, Due 03/14)      5,810,588         5,597,045         5,597,045   
      Common Unit (1 unit)         407,000         169,000   
      Common Stock Warrants (8 shares)         321,000         904,000   
        

 

 

    

 

 

    

 

 

 
           5,810,588         6,325,045         6,670,045   

Twin-Star International, Inc. (1%)*

   Consumer Home Furnishings Manufacturer    Subordinated Note (12% Cash, 1% PIK, Due 04/14)      4,500,000         4,479,768         4,479,768   
      Senior Note (4.4%, Due 04/13)      1,049,490         1,049,490         1,049,490   
        

 

 

    

 

 

    

 

 

 
           5,549,490         5,529,258         5,529,258   

United Biologics, LLC (3%)*

   Allergy Immunotherapy Services    Subordinated Note (12% Cash, 2% PIK, Due 03/17)      10,015,000         8,976,883         8,976,883   
      Class A Common Stock (177,935 shares)         1,999,989         1,999,989   
      Class A & Class B Unit Purchase Warrants         838,117         838,117   
        

 

 

    

 

 

    

 

 

 
           10,015,000         11,814,989         11,814,989   

Wholesale Floors, Inc. (1%)*

   Commercial Services    Subordinated Note (12.5% Cash, 3.5% PIK, Due 06/14)      3,892,041         3,814,306         3,814,306   
      Membership Interest Purchase Warrant (4.0%)         132,800         —     
        

 

 

    

 

 

    

 

 

 
           3,892,041         3,947,106         3,814,306   

 

9


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Schedule of Investments

March 31, 2012

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Workforce Software, LLC (2%)*

   Software Provider    Subordinated Note (11% Cash, 3% PIK, Due 11/16)    $ 7,000,000       $ 6,100,883       $ 6,100,883   
      Class B Preferred Units (1,020,000 units)         1,020,000         1,055,000   
      Common Unit Purchase Warrants (2,224,561 units)         782,300         1,259,000   
        

 

 

    

 

 

    

 

 

 
           7,000,000         7,903,183         8,414,883   

Yellowstone Landscape Group, Inc. (3%)*

   Landscaping Services    Subordinated Note (12% Cash, 3% PIK, Due 04/14)      12,912,344         12,787,797         12,787,797   
        

 

 

    

 

 

    

 

 

 
           12,912,344         12,787,797         12,787,797   
        

 

 

    

 

 

    

 

 

 

Subtotal Non–Control / Non–Affiliate Investments

        408,452,020         424,962,392         436,419,052   

Affiliate Investments:

  

American De-Rosa Lamparts, LLC and Hallmark Lighting (1%)*

   Wholesale and Distribution    Subordinated Note (12% Cash, 6% PIK, Due 10/13)      6,149,120         5,229,264         5,229,264   
      Membership Units (6,516 Units)         350,000         —     
        

 

 

    

 

 

    

 

 

 
           6,149,120         5,579,264         5,229,264   

AP Services, Inc. (1%)*

   Fluid Sealing Supplies and Services    Subordinated Note (12% Cash, 2% PIK, Due 09/15)      4,373,582         4,285,506         4,285,506   
      Class A Units (933 units)         933,333         1,177,000   
      Class B Units (496 units)         —           67,000   
        

 

 

    

 

 

    

 

 

 
           4,373,582         5,218,839         5,529,506   

Asset Point, LLC (1%)*

   Asset Management Software Provider    Senior Note (12% Cash, 5% PIK, Due 03/13)      6,131,799         6,106,812         6,106,812   
      Senior Note (12% Cash, 2% PIK, Due 07/15)      620,700         620,700         555,000   
      Subordinated Note (7% Cash, Due 03/13)      941,798         941,798         831,000   
      Membership Units (1,000,000 units)         8,203         373,000   
      Options to Purchase Membership Units (342,407 units)         500,000         167,000   
      Membership Unit Warrants (356,506 units)         —           2,000   
        

 

 

    

 

 

    

 

 

 
           7,694,297         8,177,513         8,034,812   

Axxiom Manufacturing, Inc. (0%)*

   Industrial Equipment Manufacturer    Common Stock (136,400 shares)         200,000         1,232,000   
      Common Stock Warrant (4,000 shares)         —           36,000   
           

 

 

    

 

 

 
              200,000         1,268,000   

Brantley Transportation, LLC (“Brantley Transportation”) and Pine Street Holdings, LLC (“Pine Street”) (4) (1%)*

   Oil and Gas Services    Subordinated Note—Brantley Transportation (14% Cash, 5% PIK, Due 12/12)      3,997,731         3,973,079         3,973,079   
      Common Unit Warrants—Brantley Transportation (4,560 common units)         33,600         381,000   
      Preferred Units—Pine Street (200 units)         200,000         719,000   
      Common Unit Warrants—Pine Street (2,220 units)         —           88,000   
        

 

 

    

 

 

    

 

 

 
           3,997,731         4,206,679         5,161,079   

Captek Softgel International, Inc. (2%)*

   Nutraceutical Manufacturer    Subordinated Note (12% Cash, 4% PIK, Due 08/16)      8,361,089         8,223,010         8,223,010   
      Class A Units (80,000 units)         800,000         1,298,000   
        

 

 

    

 

 

    

 

 

 
           8,361,089         9,023,010         9,521,010   

Dyson Corporation (1%)*

   Custom    Class A Units (1,000,000 units)         1,000,000         3,741,000   
   Forging and            
   Fastener            
   Supplies            
           

 

 

    

 

 

 
              1,000,000         3,741,000   

Equisales, LLC (0%)*

   Energy Products and Services    Subordinated Note (13% Cash, 4% PIK, Due 04/12)      3,157,043         3,157,043         2,659,000   
      Class A Units (500,000 units)         480,900         —     
        

 

 

    

 

 

    

 

 

 
           3,157,043         3,637,943         2,659,000   

Fischbein Partners, LLC (2%)*

   Packaging and Materials Handling Equipment Manufacturer    Subordinated Note (12% Cash, 2% PIK, Due 10/16)      6,790,740         6,675,683         6,675,683   
      Class A Units (1,750,000 units)         417,088         3,772,000   
        

 

 

    

 

 

    

 

 

 
           6,790,740         7,092,771         10,447,683   

Main Street Gourmet, LLC (1%)*

   Baked Goods Provider    Subordinated Notes (12% Cash, 4.5% PIK, Due 10/16)      4,182,542         4,113,502         4,113,502   
      Jr. Subordinated Notes (8% Cash, 2% PIK, Due 04/17)      1,020,094         1,002,804         729,000   
      Preferred Units (233 units)         211,867         —     
      Common B Units (3,000 units)         23,140         —     
      Common A Units (1,652 units)         14,993         —     
        

 

 

    

 

 

    

 

 

 
           5,202,636         5,366,306         4,842,502   

Plantation Products, LLC (3%)*

   Seed Manufacturing    Subordinated Notes (13% Cash, 4.5% PIK, Due 06/16)      15,377,516         15,076,580         15,076,580   
      Preferred Units (1,127 units)         1,127,000         1,244,000   
      Common Units (92,000 units)         23,000         155,000   
        

 

 

    

 

 

    

 

 

 
           15,377,516         16,226,580         16,475,580   

QC Holdings, Inc. (0%)*

   Lab Testing Services    Common Stock (5,594 shares)         563,602         393,000   
           

 

 

    

 

 

 
              563,602         393,000   

Technology Crops International (2%)*

   Supply Chain Management Services    Subordinated Note (12% Cash, 5% PIK, Due 03/15)      5,681,558         5,619,098         5,619,098   
      Common Units (50 Units)         500,000         769,000   
        

 

 

    

 

 

    

 

 

 
           5,681,558         6,119,098         6,388,098   

 

10


Table of Contents

TRIANGLE CAPITAL CORPORATION

Unaudited Consolidated Schedule of Investments

March 31, 2012

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Venture Technology Groups, Inc. (1%)*

   Fluid and Gas Handling Products Distributor    Subordinated Note (12.5% Cash, 4% PIK, Due 09/16)    $ 5,499,849       $ 5,400,372       $ 3,239,000   
      Class A Units (1,000,000 Units)         1,000,000         —     
        

 

 

    

 

 

    

 

 

 
           5,499,849         6,400,372         3,239,000   

Waste Recyclers Holdings, LLC (1%)*

   Environmental and Facilities Services    Class A Preferred Units (280 Units)         2,251,100         —     
      Class B Preferred Units (985,372 Units)         3,304,218         4,115,000   
      Class C Preferred Units (1,444,475 Units)         1,499,531         1,818,000   
      Common Unit Purchase Warrant (1,170,083 Units)         748,900         —     
      Common Units (153,219 Units)         180,783         —     
           

 

 

    

 

 

 
              7,984,532         5,933,000   

Wythe Will Tzetzo, LLC (3%)*

   Confectionary Goods Distributor    Subordinated Notes (13% Cash, Due 10/16)      10,357,475         9,904,615         9,904,615   
      Series A Preferred Units (74,764 units)         1,500,000         1,987,000   
      Common Unit Purchase Warrants (25,065 units)         301,510         443,000   
        

 

 

    

 

 

    

 

 

 
           10,357,475         11,706,125         12,334,615   
        

 

 

    

 

 

    

 

 

 

Subtotal Affiliate Investments

        82,642,636         98,502,634         101,197,149   

Control Investments:

              

FCL Graphics, Inc. (“FCL”) and
FCL Holding SPV, LLC (“SPV”) (1%)*

   Commercial Printing Services    Senior Note—FCL (5.0% Cash, Due 9/16)      1,469,747         1,469,747         1,469,747   
      Senior Note—FCL (8.0% Cash, 2% PIK, Due 9/16)      1,153,649         1,151,698         968,000   
      Senior Note—SPV (2.4% Cash, 6% PIK, Due 9/16)      964,486         964,486         —     
      Members Interests—SPV (299,875 Units)         —           —     
        

 

 

    

 

 

    

 

 

 
           3,587,882         3,585,931         2,437,747   

Fire Sprinkler Systems, Inc. (0%)*

   Specialty Trade Contractors    Subordinated Notes (2% PIK, Due 04/12)      3,473,830         2,955,028         208,000   
      Common Stock (2,978 shares)         294,624         —     
        

 

 

    

 

 

    

 

 

 
           3,473,830         3,249,652         208,000   

Fischbein, LLC (1%)*

   Packaging and Materials Handling Equipment Manufacturer    Class A-1 Common Units (501,984 units)         59,315         283,816   
      Class A Common Units (3,839,068 units)         453,630         1,859,433   
           

 

 

    

 

 

 
              512,945         2,143,249   

Gerli & Company (0%)*

   Specialty Woven Fabrics Manufacturer    Subordinated Note (8.5% Cash, Due 03/15)      3,267,018         3,000,000         2,030,000   
      Class A Preferred Shares (1,211 shares)         855,000         —     
      Class C Preferred Shares (744 shares)         —           —     
      Class E Preferred Shares (400 shares)         161,440         —     
      Common Stock (300 shares)         100,000         —     
        

 

 

    

 

 

    

 

 

 
           3,267,018         4,116,440         2,030,000   
        

 

 

    

 

 

    

 

 

 

Subtotal Control Investments

        10,328,730         11,464,968         6,818,996   
        

 

 

    

 

 

    

 

 

 

Total Investments, March 31, 2012 (132%)*

      $ 501,423,386       $ 534,929,994       $ 544,435,197   
        

 

 

    

 

 

    

 

 

 

 

* Value as a percent of net assets
(1) All debt investments are income producing. Common stock, preferred stock and all warrants are non–income producing.
(2) Disclosures of interest rates on notes include cash interest rates and payment–in–kind (“PIK”) interest rates.
(3) All investments are restricted as to resale and were valued at fair value as determined in good faith by the Board of Directors.
(4) Pine Street Holdings, LLC is the majority owner of Brantley Transportation, LLC and its sole business purpose is its ownership of Brantley Transportation, LLC.

See accompanying notes.

 

11


Table of Contents

TRIANGLE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2011

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Non–Control / Non–Affiliate Investments:

        

Ambient Air Corporation (“AA”) and Peaden-Hobbs Mechanical, LLC (“PHM”) (1%)*

   Specialty Trade Contractors    Subordinated Note-AA (15% Cash, 3% PIK, Due 06/13)    $ 4,127,773       $ 4,103,291       $ 4,103,291   
      Subordinated Note-PHM (12% Cash, Due 09/12)      12,857         12,857         12,857   
      Common Stock-PHM (128,571 shares)         128,571         128,571   
      Common Stock Warrants-AA (455 shares)         142,361         760,000   
        

 

 

    

 

 

    

 

 

 
           4,140,630         4,387,080         5,004,719   

Ann’s House of Nuts, Inc. (3%)*

   Trail Mixes and Nut Producers    Subordinated Note (12% Cash, 1% PIK, Due 11/17)      7,080,843         6,716,662         6,716,662   
      Preferred A Units (22,368 units)         2,124,957         2,407,000   
      Preferred B Units (10,380 units)         986,059         1,204,000   
      Common Units (190,935 units)         150,000         —     
      Common Stock Warrants (14,558 shares)         14,558         —     
        

 

 

    

 

 

    

 

 

 
           7,080,843         9,992,236         10,327,662   

Aramsco, Inc. (1%)

   Environmental    Subordinated Note (12% Cash, 2% PIK, Due         
   Emergency Preparedness Products Distributor    03/14)      1,800,997         1,673,278         1,673,278   
        

 

 

    

 

 

    

 

 

 
           1,800,997         1,673,278         1,673,278   

Assurance Operations Corporation (0%)*

   Metal Fabrication    Common Stock (517 Shares)         516,867         773,000   
           

 

 

    

 

 

 
              516,867         773,000   

BioSan Laboratories, Inc. (2%)*

   Nutritional    Subordinated Note (12% Cash, 3.8% PIK, Due         
   Supplement Manufacturing and Distribution    10/16)      5,276,296         5,179,676         5,179,676   
        

 

 

    

 

 

    

 

 

 
           5,276,296         5,179,676         5,179,676   

Botanical Laboratories, Inc. (3%)*

   Nutritional    Senior Notes (14% Cash, 1% PIK, Due 02/15)      10,114,528         9,580,196         9,122,000   
   Supplement    Common Unit Warrants (998,680 Units)         474,600         —     
        

 

 

    

 

 

    

 

 

 
   Manufacturing         10,114,528         10,054,796         9,122,000   
   and Distribution            

Capital Contractors, Inc. (3%)*

   Janitorial and Facilities Maintenance Services    Subordinated Notes (12% Cash, 2% PIK, Due 12/15)      9,185,225         8,617,853         8,617,853   
      Common Stock Warrants (20 shares)         492,000         398,000   
        

 

 

    

 

 

    

 

 

 
           9,185,225         9,109,853         9,015,853   

Carolina Beverage Group, LLC (4%)*

   Beverage Manufacturing and Packaging    Subordinated Note (12% Cash, 4% PIK, Due 02/16)      13,260,895         13,055,973         13,055,973   
      Class A Units (11,974 Units)         1,077,615         1,120,000   
      Class B Units (11,974 Units)         119,735         —     
        

 

 

    

 

 

    

 

 

 
           13,260,895         14,253,323         14,175,973   

CRS Reprocessing, LLC (8%)*

   Fluid Reprocessing Services    Subordinated Note (12% Cash, 2% PIK, Due 11/15)      11,357,260         11,022,004         11,022,004   
      Subordinated Note (10% Cash, 4% PIK, Due 11/15)      11,016,583         10,020,937         10,020,937   
      Series C Preferred Units (26 Units)         288,342         476,000   
      Common Unit Warrant (550 Units)         1,253,556         4,040,000   
        

 

 

    

 

 

    

 

 

 
           22,373,843         22,584,839         25,558,941   

CV Holdings, LLC (5%)*

   Specialty Healthcare Products Manufacturer    Subordinated Note (12% Cash, 4% PIK, Due 09/13)      9,279,054         8,845,875         8,845,875   
      Subordinated Note (12% Cash, Due 09/13)      6,000,000         5,912,355         5,912,355   
      Royalty rights         874,400         920,000   
        

 

 

    

 

 

    

 

 

 
           15,279,054         15,632,630         15,678,230   

DLR Restaurants, LLC (3%)*

   Restaurant    Subordinated Note (12% Cash, 3% PIK, Due 03/16)      10,660,442         10,448,050         10,448,050   
      Subordinated Note (12% Cash, 4% PIK, Due 03/16)      752,083         752,083         752,083   
      Royalty rights         —           —     
        

 

 

    

 

 

    

 

 

 
           11,412,525         11,200,133         11,200,133   

Electronic Systems Protection, Inc. (2%)*

   Power Protection Systems Manufacturing    Subordinated Note (12% Cash, 2% PIK, Due 12/15)      4,162,798         4,128,357         4,128,357   
      Senior Note (8.3% Cash, Due 01/14)      681,475         681,475         681,475   
      Common Stock (570 shares)         285,000         367,000   
        

 

 

    

 

 

    

 

 

 
           4,844,273         5,094,832         5,176,832   

Frozen Specialties, Inc. (3%)*

   Frozen Foods Manufacturer    Subordinated Note (13% Cash, 5% PIK, Due 07/14)      8,478,731         8,391,839         8,391,839   
        

 

 

    

 

 

    

 

 

 
           8,478,731         8,391,839         8,391,839   

Garden Fresh Restaurant Corp. (0%)*

   Restaurant    Membership Units (5,000 units)         500,000         820,000   
           

 

 

    

 

 

 
              500,000         820,000   

Grindmaster-Cecilware Corp. (2%)*

   Food Services Equipment Manufacturer    Subordinated Note (12% Cash, 4.5% PIK, Due 04/16)      6,274,350         6,198,309         5,104,000   
        

 

 

    

 

 

    

 

 

 
           6,274,350         6,198,309         5,104,000   

 

12


Table of Contents

TRIANGLE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2011

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Hatch Chile Co., LLC (2%)*

   Food Products Distributor    Senior Note (19% Cash, Due 07/15)    $ 4,500,000       $ 4,411,111       $ 4,411,111   
      Subordinated Note (14% Cash, Due 07/15)      1,000,000         865,687         865,687   
      Unit Purchase Warrant (5,265 Units)         149,800         216,000   
        

 

 

    

 

 

    

 

 

 
           5,500,000         5,426,598         5,492,798   

Home Physicians, LLC (“HP”) and Home Physicians Holdings, LP (“HPH”) (3%)*

   In-home primary care physician services    Subordinated Note-HP (12% Cash, 5% PIK, Due 03/16)      10,654,096         10,454,979         8,868,000   
      Subordinated Note-HPH (4% Cash, 6% PIK, Due 03/16)      1,283,791         1,283,791         —     
      Royalty rights         —           —     
        

 

 

    

 

 

    

 

 

 
           11,937,887         11,738,770         8,868,000   

Infrastructure Corporation of America, Inc. (3%)*

   Roadway Maintenance, Repair and Engineering Services    Subordinated Note (12% Cash, 1% PIK, Due 10/15)      10,878,815         9,876,796         9,876,796   
      Common Stock Purchase Warrant (199,526 shares)         980,000         1,348,000   
        

 

 

    

 

 

    

 

 

 
           10,878,815         10,856,796         11,224,796   

Inland Pipe Rehabilitation Holding Company LLC
(7%)*

   Cleaning and Repair Services    Subordinated Note (13% Cash, 2.5% PIK, Due 12/16)      20,277,473         19,996,881         19,996,881   
      Membership Interest Purchase Warrant (3.0%)         853,500         2,112,000   
        

 

 

    

 

 

    

 

 

 
           20,277,473         20,850,381         22,108,881   

Library Systems & Services, LLC (2%)*

   Municipal Business Services    Subordinated Note (12.5% Cash, 4.5% PIK, Due 06/15)      5,250,001         5,130,053         5,130,053   
      Common Stock Warrants (112 shares)         58,995         723,000   
        

 

 

    

 

 

    

 

 

 
           5,250,001         5,189,048         5,853,053   

Magpul Industries Corp. (4%)

   Firearm Accessories Manufacturer and Distributor    Subordinated Note (12% Cash, 3% PIK, Due 03/17)      13,300,000         13,042,711         13,042,711   
      Preferred Units (1,470 Units)         1,470,000         1,470,000   
      Common Units (30,000 Units)         30,000         30,000   
        

 

 

    

 

 

    

 

 

 
           13,300,000         14,542,711         14,542,711   

McKenzie Sports Products, LLC (2%)*

   Taxidermy Manufacturer    Subordinated Note (13% Cash, 1% PIK, Due 10/17)      6,071,841         5,966,205         5,966,205   
        

 

 

    

 

 

    

 

 

 
           6,071,841         5,966,205         5,966,205   

Media Storm, LLC (3%)*

   Marketing Services    Subordinated Note (12% Cash, 2% PIK, Due 10/17)      8,532,111         8,449,580         8,449,580   
      Membership Units (1,216,204 Units)         1,216,204         1,216,204   
        

 

 

    

 

 

    

 

 

 
           8,532,111         9,665,784         9,665,784   

Media Temple, Inc. (5%)*

   Web Hosting Services    Subordinated Note (12% Cash, 5.5% PIK, Due 04/15)      8,800,000         8,658,463         8,658,463   
      Convertible Note (8% Cash, 6% PIK, Due 04/15)      3,200,000         2,778,030         4,687,000   
      Common Stock Purchase Warrant (28,000 Shares)         536,000         2,051,000   
        

 

 

    

 

 

    

 

 

 
           12,000,000         11,972,493         15,396,463   

Minco Technology Labs, LLC (2%)*

   Semiconductor Distribution    Subordinated Note (13% Cash, 3.25% PIK, Due 05/16)      5,272,430         5,170,334         5,170,334   
      Class A Units (5,000 Units)         500,000         31,000   
        

 

 

    

 

 

    

 

 

 
           5,272,430         5,670,334         5,201,334   

National Investment Managers Inc. (4%)*

   Retirement Plan Administrator    Subordinated Note (11% Cash, 5% PIK, Due 09/16)      11,703,034         11,450,996         11,450,996   
      Preferred A Units (90,000 Units)         900,000         479,000   
      Common Units (10,000 Units)         100,000         —     
        

 

 

    

 

 

    

 

 

 
           11,703,034         12,450,996         11,929,996   

Novolyte Technologies, Inc. (4%)*

   Specialty Manufacturing    Subordinated Note (12% Cash, 4% PIK, Due 07/16)      7,264,182         7,143,362         7,143,362   
      Subordinated Note (12% Cash, 4% PIK, Due 07/16)      2,334,916         2,296,081         2,296,081   
      Preferred Units (641 units)         661,227         888,000   
      Common Units (24,522 units)         165,306         1,744,000   
        

 

 

    

 

 

    

 

 

 
           9,599,098         10,265,976         12,071,443   

Pomeroy IT Solutions (3%)*

   Information    Subordinated Notes (13% Cash, 2% PIK, Due         
              
   Technology Outsourcing Services    02/16)      10,181,198         9,955,154         9,955,154   
        

 

 

    

 

 

    

 

 

 
           10,181,198         9,955,154         9,955,154   

PowerDirect Marketing, LLC (2%)*

   Marketing Services    Subordinated Note (12% Cash, 2% PIK, Due 05/16)      8,100,993         7,580,433         7,580,433   
      Common Unit Purchase Warrants         402,000         548,000   
        

 

 

    

 

 

    

 

 

 
           8,100,993         7,982,433         8,128,433   

Renew Life Formulas, Inc. (4%)*

   Nutritional    Subordinated Notes (12% Cash, 3% PIK, Due         
   Supplement    03/15)      13,401,006         13,155,235         13,155,235   
   Manufacturing            
   and            
   Distribution            
        

 

 

    

 

 

    

 

 

 
           13,401,006         13,155,235         13,155,235   

 

13


Table of Contents

TRIANGLE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2011

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Sheplers, Inc. (4%)*

   Western Apparel Retailer    Subordinated Note (13.15% Cash, Due 12/16)    $ 8,750,000       $ 8,531,250       $ 8,531,250   
      Subordinated Note (10% Cash, 7% PIK, Due 12/17)      3,758,021         3,683,021         3,683,021   
        

 

 

    

 

 

    

 

 

 
           12,508,021         12,214,271         12,214,271   

SRC, Inc. (3%)*

   Specialty Chemical Manufacturer    Subordinated Notes (12% Cash, 2% PIK, Due 09/14)      8,879,665         8,640,013         8,640,013   
      Common Stock Purchase Warrants         123,800         —     
        

 

 

    

 

 

    

 

 

 
           8,879,665         8,763,813         8,640,013   

Syrgis Holdings, Inc. (1%)*

   Specialty Chemical Manufacturer    Senior Notes (7.75%-10.75% Cash, Due 08/12-02/14)      2,444,766         2,437,942         2,437,942   
      Class C Units (2,114 units)         1,000,000         1,597,000   
        

 

 

    

 

 

    

 

 

 
           2,444,766         3,437,942         4,034,942   

TBG Anesthesia Management, LLC (3%)*

   Physician Management Services    Senior Note (13.5% Cash, Due 11/14)      10,750,000         10,445,062         10,445,062   
      Warrant (263 shares)         276,100         239,000   
        

 

 

    

 

 

    

 

 

 
           10,750,000         10,721,162         10,684,062   

TMR Automotive Service Supply, LLC (2%)

   Automotive Supplies    Subordinated Note (12% Cash, 1% PIK, Due 03/16)      5,000,000         4,738,933         4,738,933   
      Unit Purchase Warrant (329,518 units)         195,000         284,000   
        

 

 

    

 

 

    

 

 

 
           5,000,000         4,933,933         5,022,933   

Top Knobs USA, Inc. (3%)

   Hardware Designer and Distributor    Subordinated Note (12% Cash, 4.5% PIK, Due 05/17)      10,369,002         10,209,875         10,209,875   
      Common Stock (26,593 shares)         750,000         733,000   
        

 

 

    

 

 

    

 

 

 
           10,369,002         10,959,875         10,942,875   

Trinity Consultants Holdings, Inc. (2%)*

   Air Quality Consulting Services    Subordinated Note (12% Cash, 2.5% PIK, Due 11/17)      7,216,500         7,072,500         7,072,500   
      Series A Preferred Stock (10,000 units)         950,000         950,000   
      Common Stock (55,556 units)         50,000         50,000   
        

 

 

    

 

 

    

 

 

 
           7,216,500         8,072,500         8,072,500   

TrustHouse Services Group, Inc. (4%)*

   Food Management Services    Subordinated Note (12% Cash, 2% PIK, Due 07/18)      13,362,115         13,136,232         13,136,232   
      Class A Units (1,557 units)         512,124         799,000   
      Class B Units (82 units)         26,954         28,000   
        

 

 

    

 

 

    

 

 

 
           13,362,115         13,675,310         13,963,232   

Tulsa Inspection Resources, Inc. (2%)*

   Pipeline Inspection Services    Subordinated Note (14%-17.5% Cash, Due 03/14)      5,810,588         5,574,292         5,574,292   
      Common Unit (1 unit)         200,000         117,000   
      Common Stock Warrants (8 shares)         321,000         627,000   
        

 

 

    

 

 

    

 

 

 
           5,810,588         6,095,292         6,318,292   

Twin-Star International, Inc. (2%)*

   Consumer Home Furnishings Manufacturer    Subordinated Note (12% Cash, 1% PIK, Due 04/14)      4,500,000         4,476,065         4,476,065   
      Senior Note (4.4%, Due 04/13)      1,052,240         1,052,240         1,052,240   
        

 

 

    

 

 

    

 

 

 
           5,552,240         5,528,305         5,528,305   

Wholesale Floors, Inc. (1%)*

   Commercial Services    Subordinated Note (12.5% Cash, 3.5% PIK, Due 06/14)      3,858,183         3,773,066         3,773,066   
      Membership Interest Purchase Warrant (4.0%)         132,800         —     
        

 

 

    

 

 

    

 

 

 
           3,858,183         3,905,866         3,773,066   

Workforce Software, LLC (2%)*

   Software Provider    Subordinated Note (11% Cash, 3% PIK, Due 11/16)      7,000,000         6,065,200         6,065,200   
      Class B Preferred Units (1,020,000 units)         1,020,000         1,020,000   
      Common Unit Purchase Warrants (2,224,561 units)         782,300         782,300   
        

 

 

    

 

 

    

 

 

 
           7,000,000         7,867,500         7,867,500   

Yellowstone Landscape Group, Inc. (4%)*

   Landscaping Services    Subordinated Note (12% Cash, 3% PIK, Due 04/14)      12,816,222         12,678,077         12,678,077   
        

 

 

    

 

 

    

 

 

 
           12,816,222         12,678,077         12,678,077   
        

 

 

    

 

 

    

 

 

 

Subtotal Non–Control / Non–Affiliate Investments

     377,095,379         389,312,451         396,502,490   

 

14


Table of Contents

TRIANGLE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2011

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Affiliate Investments:

              

American De-Rosa Lamparts, LLC and Hallmark Lighting (2%)*

   Wholesale and Distribution    Subordinated Note (10% PIK, Due 10/13)    $ 6,056,794       $ 5,213,450       $ 5,213,450   
      Membership Units (6,516 Units)         350,000         —     
        

 

 

    

 

 

    

 

 

 
           6,056,794         5,563,450         5,213,450   

AP Services, Inc. (2%)*

   Fluid Sealing Supplies and Services    Subordinated Note (12% Cash, 2% PIK, Due 09/15)      4,351,545         4,258,465         4,258,465   
      Class A Units (933 units)         933,333         1,181,000   
      Class B Units (496 units)         —           80,000   
        

 

 

    

 

 

    

 

 

 
           4,351,545         5,191,798         5,519,465   

Asset Point, LLC (2%)*

   Asset Management Software Provider    Senior Note (12% Cash, 5% PIK, Due 03/13)      6,054,948         6,024,163         6,024,163   
      Senior Note (12% Cash, 2% PIK, Due 07/15)      617,572         617,572         518,000   
      Subordinated Note (7% Cash, Due 03/13)      941,798         941,798         786,000   
      Membership Units (1,000,000 units)         8,203         346,000   
      Options to Purchase Membership Units (342,407 units)         500,000         149,000   
      Membership Unit Warrants (356,506 units)         —           2,000   
        

 

 

    

 

 

    

 

 

 
           7,614,318         8,091,736         7,825,163   

Axxiom Manufacturing, Inc. (0%)*

   Industrial Equipment Manufacturer    Common Stock (136,400 shares)         200,000         1,140,000   
      Common Stock Warrant (4,000 shares)         —           33,000   
           

 

 

    

 

 

 
              200,000         1,173,000   

Brantley Transportation, LLC (“Brantley Transportation”) and Pine Street Holdings, LLC (“Pine Street”) (4)
(2%)*

   Oil and Gas Services    Subordinated Note—Brantley Transportation (14% Cash, 5% PIK, Due 12/12)      3,947,627         3,915,231         3,915,231   
      Common Unit Warrants—Brantley Transportation (4,560 common units)         33,600         401,000   
      Preferred Units—Pine Street (200 units)         200,000         757,000   
      Common Unit Warrants—Pine Street (2,220 units)         —           99,000   
        

 

 

    

 

 

    

 

 

 
           3,947,627         4,148,831         5,172,231   

Captek Softgel International, Inc. (3%)*

   Nutraceutical Manufacturer    Subordinated Note (12% Cash, 4% PIK, Due 08/16)      8,277,116         8,133,312         8,133,312   
      Class A Units (80,000 units)         800,000         1,292,000   
        

 

 

    

 

 

    

 

 

 
           8,277,116         8,933,312         9,425,312   

Dyson Corporation (1%)*

   Custom Forging and Fastener Supplies    Class A Units (1,000,000 units)        

 

1,000,000

 

  

 

    

 

3,836,000

 

  

 

           

 

 

    

 

 

 
              1,000,000         3,836,000   

Equisales, LLC (1%)*

   Energy Products and Services    Subordinated Note (13% Cash, 4% PIK, Due 04/12)      3,125,336         3,116,853         3,045,000   
      Class A Units (500,000 units)         480,900         535,000   
        

 

 

    

 

 

    

 

 

 
           3,125,336         3,597,753         3,580,000   

Fischbein Partners, LLC (3%)*

   Packaging and Materials Handling Equipment Manufacturer    Subordinated Note (12% Cash, 2% PIK, Due 10/16)      6,756,525         6,636,697         6,636,697   
      Class A Units (1,750,000 units)         417,088         3,344,000   
        

 

 

    

 

 

    

 

 

 
           6,756,525         7,053,785         9,980,697   

Main Street Gourmet, LLC (1%)*

   Baked Goods Provider    Subordinated Notes (12% Cash, 4.5% PIK, Due 10/16)      4,135,501         4,063,598         4,063,598   
      Jr. Subordinated Notes (8% Cash, 2% PIK, Due 04/17)      1,014,963         996,975         716,000   
      Preferred Units (233 units)         211,867         —     
      Common B Units (3,000 units)         23,140         —     
      Common A Units (1,652 units)         14,993         —     
        

 

 

    

 

 

    

 

 

 
           5,150,464         5,310,573         4,779,598   

Plantation Products, LLC (5%)*

   Seed Manufacturing    Subordinated Notes (13% Cash, 4.5% PIK, Due 06/16)      15,203,916         14,889,867         14,889,867   
      Preferred Units (1,127 units)         1,127,000         1,221,000   
      Common Units (92,000 units)         23,000         142,000   
        

 

 

    

 

 

    

 

 

 
           15,203,916         16,039,867         16,252,867   

QC Holdings, Inc. (0%)*

   Lab Testing Services    Common Stock (5,594 shares)         563,602         393,000   
           

 

 

    

 

 

 
              563,602         393,000   

Technology Crops International (2%)*

   Supply Chain Management Services    Subordinated Note (12% Cash, 5% PIK, Due 03/15)      5,610,350         5,543,617         5,543,617   
      Common Units (50 Units)         500,000         589,000   
        

 

 

    

 

 

    

 

 

 
           5,610,350         6,043,617         6,132,617   

 

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TRIANGLE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2011

 

Portfolio Company

  

Industry

  

Type of Investment(1)(2)

   Principal
Amount
     Cost      Fair
Value(3)
 

Venture Technology Groups, Inc. (2%)*

   Fluid and Gas    Subordinated Note (12.5% Cash, 4% PIK,         
   Handling Products Distributor    Due 09/16)    $ 5,444,612       $ 5,341,062       $ 5,341,062   
      Class A Units (1,000,000 Units)         1,000,000         530,000   
        

 

 

    

 

 

    

 

 

 
           5,444,612         6,341,062         5,871,062   

Waste Recyclers Holdings, LLC (2%)*

   Environmental and Facilities Services    Class A Preferred Units (280 Units)         2,251,100         —     
      Class B Preferred Units (985,372 Units)         3,304,218         4,310,000   
      Class C Preferred Units (1,444,475 Units)         1,499,531         1,752,000   
      Common Unit Purchase Warrant (1,170,083 Units)         748,900         —     
      Common Units (153,219 Units)         180,783         —     
           

 

 

    

 

 

 
              7,984,532         6,062,000   

Wythe Will Tzetzo, LLC (4%)*

   Confectionary Goods Distributor    Subordinated Notes (13% Cash, Due 10/16)      10,357,475         9,885,836         9,885,836   
      Series A Preferred Units (74,764 units)         1,500,000         1,784,000   
      Common Unit Purchase Warrants (25,065 units)         301,510         380,000   
        

 

 

    

 

 

    

 

 

 
           10,357,475         11,687,346         12,049,836   
        

 

 

    

 

 

    

 

 

 

Subtotal Affiliate Investments

           81,896,078         97,751,264         103,266,298   

Control Investments:

              

FCL Graphics, Inc. (“FCL”) and FCL Holding SPV, LLC (“SPV”) (1%)*

   Commercial Printing Services    Senior Note—FCL (5.0% Cash, Due 9/16)      1,485,821         1,478,538         1,478,538   
      Senior Note—FCL (8.0% Cash, 2% PIK, Due 9/16)      1,147,836         1,145,436         955,000   
      Senior Note—SPV (2.5% Cash, 6% PIK, Due 9/16)      950,328         950,328         343,000   
      Members Interests—SPV (299,875 Units)         —           —     
        

 

 

    

 

 

    

 

 

 
           3,583,985         3,574,302         2,776,538   

Fire Sprinkler Systems, Inc. (0%)*

   Specialty Trade Contractors    Subordinated Notes (2% PIK, Due 04/12)      3,281,284         2,780,028         443,000   
      Common Stock (2,978 shares)         294,624         —     
        

 

 

    

 

 

    

 

 

 
           3,281,284         3,074,652         443,000   

Fischbein, LLC (1%)*

   Packaging and Materials Handling Equipment Manufacturer    Class A-1 Common Units (501,984 units)         59,315         283,816   
      Class A Common Units (3,839,068 units)
    
       
453,630
  
    
1,859,433
  
           

 

 

    

 

 

 
              512,945         2,143,249   

Gerli & Company (1%)*

   Specialty Woven Fabrics Manufacturer    Subordinated Note (8.5% Cash, Due 03/15)      3,198,299         3,000,000         1,947,000   
      Class A Preferred Shares (1,211 shares)         855,000         —     
      Class C Preferred Shares (744 shares)         —           —     
      Class E Preferred Shares (400 shares)         161,440         —     
      Common Stock (300 shares)         100,000         —     
        

 

 

    

 

 

    

 

 

 
           3,198,299         4,116,440         1,947,000   
        

 

 

    

 

 

    

 

 

 

Subtotal Control Investments

           10,063,568         11,278,339         7,309,787   
        

 

 

    

 

 

    

 

 

 

Total Investments, December 31, 2011(152%)*

         $ 469,055,025       $ 498,342,054       $ 507,078,575   
        

 

 

    

 

 

    

 

 

 

 

* Value as a percent of net assets
(1) All debt investments are income producing. Common stock, preferred stock and all warrants are non–income producing.
(2) Disclosures of interest rates on subordinated notes include cash interest rates and payment–in–kind (“PIK”) interest rates.
(3) All investments are restricted as to resale and were valued at fair value as determined in good faith by the Board of Directors.
(4) Pine Street Holdings, LLC is the majority owner of Brantley Transportation, LLC and its sole business purpose is its ownership of Brantley Transportation, LLC.

See accompanying notes.

 

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TRIANGLE CAPITAL CORPORATION

Notes to Unaudited Consolidated Financial Statements

1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS

Organization

Triangle Capital Corporation and its wholly owned subsidiaries, including Triangle Mezzanine Fund LLLP ( “Triangle SBIC”) and Triangle Mezzanine Fund II LP (“Triangle SBIC II”) (collectively, the “Company”), operates as a Business Development Company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). Triangle SBIC and Triangle SBIC II are specialty finance limited partnerships formed to make investments primarily in middle market companies located throughout the United States. On September 11, 2003, Triangle SBIC was licensed to operate as a Small Business Investment Company (“SBIC”) under the authority of the United States Small Business Administration (“SBA”). On May 26, 2010, Triangle SBIC II obtained its license to operate as an SBIC. As SBICs, both Triangle SBIC and Triangle SBIC II are subject to a variety of regulations concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments.

The Company currently operates as a closed–end, non–diversified investment company and has elected to be treated as a BDC under the 1940 Act. The Company is internally managed by its executive officers under the supervision of its Board of Directors. The Company does not pay management or advisory fees, but instead incurs the operating costs associated with employing executive management and investment and portfolio management professionals.

Basis of Presentation

The financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries, including Triangle SBIC and Triangle SBIC II. Neither Triangle SBIC nor Triangle SBIC II consolidates portfolio company investments. The effects of all intercompany transactions between the Company and its subsidiaries have been eliminated in consolidation.

The accompanying unaudited financial statements are presented in conformity with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of financial statements for the interim period, have been reflected in the unaudited consolidated financial statements. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Additionally, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the period ended December 31, 2011. Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

Recently Issued Accounting Standards

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurements (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04. ASU 2011-04 clarifies the application of existing fair value measurement and disclosure requirements, changes the application of some requirements for measuring fair value and requires additional disclosure for fair value measurements categorized in Level 3 of the fair value hierarchy. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The Company adopted this standard on January 1, 2012. The adoption of ASU 2011-04 did not have a material impact on the Company’s process for measuring fair values or on its financial statements, other than the inclusion of additional required disclosures.

Reclassifications

Certain reclassifications have been made in the consolidated financial statements for the quarter ended March 31, 2011 in order to conform to current presentation. The Company had historically included losses realized on the extinguishment of debt in “Amortization of deferred financing fees” in the Consolidated Statements of Operations. Effective January 1, 2012, the Company records losses on the extinguishment of debt as a separate line item in the Consolidated Statements of Operations. See Note 4 to the Consolidated Financial Statements for further discussion of deferred financing fees.

 

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Table of Contents

2. INVESTMENTS

The Company primarily invests in subordinated debt (or 2nd lien notes) of privately held companies. These subordinated debt investments generally are secured by a second priority security interest in the assets of the borrower. In addition, the Company generally invests in an equity instrument of the borrower, such as warrants to purchase common stock in the portfolio company or direct preferred or common equity interests. The Company also invests in senior debt (or 1st lien notes) on a more limited basis.

The cost basis of our debt investments include any unamortized original issue discount, unamortized loan origination fees and payment–in–kind (“PIK”) interest, if any. Summaries of the composition of the Company’s investment portfolio at cost and fair value, and as a percentage of total investments, are shown in the following tables:

 

     Cost      Percentage of
Total
Portfolio
    Fair Value      Percentage of
Total Portfolio
 

March 31, 2012:

          

Subordinated debt and 2nd lien notes

   $ 417,351,461         78   $ 408,479,846         75

Senior debt and 1st lien notes

     68,624,919         13        68,441,221         13   

Equity shares

     38,948,717         7        49,504,013         9   

Equity warrants

     9,130,497         2        17,178,117         3   

Royalty rights

     874,400         —          832,000         —     
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 534,929,994         100   $ 544,435,197         100
  

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2011:

          

Subordinated debt and 2nd lien notes

   $ 393,830,719         79   $ 387,169,056         76

Senior debt and 1st lien notes

     60,622,827         12        59,974,195         12   

Equity shares

     34,741,728         7        43,972,024         9   

Equity warrants

     8,272,380         2        15,043,300         3   

Royalty rights

     874,400         —          920,000         —     
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 498,342,054         100   $ 507,078,575         100
  

 

 

    

 

 

   

 

 

    

 

 

 

During the three months ended March 31, 2012, the Company made four new investments totaling approximately $41.0 million and investments in three existing portfolio companies totaling approximately $1.0 million. During the three months ended March 31, 2011, the Company made five new investments totaling approximately $51.5 million and investments in four existing portfolio companies totaling approximately $16.8 million.

Investment Valuation Process

The Company has established and documented processes and methodologies for determining the fair values of portfolio company investments on a recurring basis in accordance with the 1940 Act and FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). Under ASC Topic 820, a financial instrument is categorized within the ASC Topic 820 valuation hierarchy based upon the lowest level of input to the valuation process that is significant to the fair value measurement. The three levels of valuation inputs established by ASC Topic 820 are as follows:

Level 1 Inputs – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 Inputs – include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 Inputs – include inputs that are unobservable and significant to the fair value measurement.

The Company’s investment portfolio is comprised of debt and equity instruments of privately held companies for which quoted prices or other inputs falling within the categories of Level 1 and Level 2 are not available. Therefore, the Company determines the fair value of its investments in good faith using level 3 inputs, pursuant to a valuation policy and process that is established by the management of the Company with the assistance of certain third-party advisors and subsequently approved by the Company’s Board of Directors. There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. The recorded fair values of the Company’s investments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

 

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Table of Contents

The Company’s valuation process is led by the Company’s executive officers and managing directors. The Company’s valuation process begins with a quarterly review of each investment in the Company’s investment portfolio by the Company’s executive officers and investment committee. Valuations of each portfolio security are then prepared by the Company’s investment professionals, who have direct responsibility for the origination, management and monitoring of each investment. Under the Company’s valuation policy, each investment valuation is subject to (i) a review by the lead investment officer responsible for the portfolio company investment and (ii) a peer review by a second investment officer or executive officer of the Company. Generally, any investment that is valued below cost is subjected to review by one of the Company’s executive officers. After the peer review is complete, the Company engages Duff & Phelps, LLC (“Duff & Phelps”), an independent valuation firm, to provide a third-party review of certain investments, as described further below. In addition, all investment valuations are provided to the Company’s independent registered public accounting firm each quarter in connection with quarterly review procedures and the annual audit of our financial statements. Finally, the Board of Directors has the responsibility for reviewing and approving, in good faith, the fair value of the Company’s investments in accordance with the 1940 Act.

Duff & Phelps provides third party valuation consulting services to the Company which consist of certain limited procedures that the Company identified and requested Duff & Phelps to perform (hereinafter referred to as the “procedures”). The Company generally requests Duff & Phelps to perform the procedures on each portfolio company at least once in every calendar year and for new portfolio companies, at least once in the twelve-month period subsequent to the initial investment. In addition, the Company generally requests Duff & Phelps to perform the procedures on a portfolio company when there has been a significant change in the fair value of the investment. In certain instances, the Company may determine that it is not cost-effective, and as a result is not in the Company’s stockholders’ best interest, to request Duff & Phelps to perform the procedures on one or more portfolio companies. Such instances include, but are not limited to, situations where the fair value of the investment in the portfolio company is determined to be insignificant relative to the total investment portfolio.

The total number of investments and the percentage of the investment portfolio on which the Company asked Duff & Phelps to perform such procedures are summarized below by period:

 

For the quarter ended:

   Total
companies
   Percent of total
investments at
fair value(1)